The methods used to prepare three spray dried yttria-zirconia powders have been shown to have a large effect on their behaviour during subsequent heat treatment and also on their resultant properties. Changes of morphology of the granules, their surface area, pore size distribution, porosity and compressive strength which occur during heat treatment have been determined. A concept of local densification was used to explain the observed changes in pore size distribution, where it was shown that distributions with pores smaller than 60-80 nm resulted in significant pore enlargement during the early stages of sintering. A theory based on fracture mechanics explained the changes in compressive strength of the granules.